Thursday, February 04, 2016

Italy and the euro crisis

Greece may be the starkest example, but it is not the only country facing overlapping crises. It is not even the most important one facing this dilemma. That would be Italy. While Rome’s problems are different from those of Greece, the country’s long-term sustainability in the eurozone is just as uncertain, unless you believe that its economic performance will miraculously improve when there is no reason why it should.

Italy was overwhelmed by the increase of refugees from north Africa last year. On top of that it faces unresolved economic problems — no productivity growth for 15 years; a large stock of public sector debt that leaves the government with virtually no fiscal room for manoeuvre; and a banking system with €200bn in non-performing loans, plus another €150bn of debt classified as troubled. Then consider that its three main opposition parties have, at one time or another, all questioned the country’s membership of the eurozone. Even if none of them look like coming to power in the near future, it is clear that Italy only has a limited amount of time to fix its multiple problems.

Münchau notes that Italy's leadership is being open in its criticism of the EU under Angela Merkel's rule: "There are signs that Italy’s patience with the EU and Germany, in particular, is wearing thin . Matteo Renzi, prime minister, has been openly attacking the policies of the EU on energy, on Russia, on the fiscal deficits, as well as German dominance of the entire apparatus."

But I have to admit I'm puzzled by his concluding paragraph: "There is an element of bad luck in this. Europe’s policy of muddling through, of doing the minimum required, and hoping to mop up the rubble later, might even have worked if the refugees had stayed at home. The EU’s mistake was not to have chosen a path that would lead to invariable ruin, but to render itself defenceless against the next unforeseen shock."

I can't even figure out what he's trying to say with the last sentence. Does he mean it would have been okay "to have chosen a path that would lead to invariable ruin" if they had just left themselves a bit more flexibility for the next bump in the road that would require more muddling through? That "invariable ruin" wouldn't be quite so bad if it were delayed a bit?

The increasing pressure of the refugee problem no doubt made the EU's situation more complicated in 2015. But that acute phase was also a result of previous muddling through on the refugee crisis which had actually been going on for years. It's not unusual for politicians to overblow real crises or gin up phony ones for other purposes. But the refugee problem has been a visible crisis for years, while Merkel and the rest of the EU just didn't come up with good solutions. And still haven't.

I'm sorry to see that Münchau will no longer be providing a weekly column for Spiegel Online, as he notes in his final installment, Langsames Dahinsiechen 29.01.2016.

There he explains that he expects the EU will not collapse in a rapid and dramatic fashion. But rather that it will decay away, with "periphery" countries dropping off and a core of the wealthiest countries remaining:

[Even with the best will, a solution to our permanent crises would be difficult, because to coordinate them assumes a commonality of interests. It's more likely that the various crises will run their course and that we will absorb their negative social and economic consequences with the Whisk broom of political-economic emergency measures.

In the course of these developments, along with the end of Schengen and the shrinking of the euro area, {we are} threatened as well with a collapse of income, an impoverishment of the middle class and with a consequent political radicalization. That doesn't unquestionably threaten democracy as such, but it certainly does the agreements and institutions that cross national borders. It is not a good environment for European integration and international cooperation and coordination. The EU will thereby not collapse spectacularly, but rather tatter along the edges and hollow out in the center.]

I'm not at all confident that a crackup of the eurozone will be so minimally dramatic. But we will probably soon see.

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Johann Gottfried von Herder (1744–1803)

Herder developed a philosophy of history in which he focused on the prominent ideas of historical eras, that he held to be fundamentally shaped by the successive historical stages leading to improvements in civilization. He also developed theories of language anticipating 20th-century linguistics. "Instead of seeing [language] as an assemblage of signs co-ordinated with things, [Herder saw it] rather as the necessary embodiment of a certain form of consciousness, which in this case is that form in which there are such things as signs for us." (Charles Taylor)